India's most consequential conglomerate has just confirmed that professionals might run the business, but it's the family that runs the professionals. Tata Sons is the starkest proof yet.
Chandrasekaran was no outsider, having spent three decades with the group, rising through TCS to become its chief executive before taking charge of Tata Sons in 2017 at a moment of acute stress following Cyrus Mistry's messy exit. As an insider, a technocrat, and a manager without a family stake, he was the ideal professional successor after the Ratan Tata-Cyrus Mistry rupture. And the numbers back him: rapid growth, increased profitability, even though the newly minted private businesses posted mounting losses.
Yet his tenure is ending after months of discord, with the Tata Trusts, which control roughly two-thirds of Tata Sons, declining to endorse a third term. More precisely, Noel Tata, who heads the trusts, withheld his assent unless certain conditions were met.
Complicated issues are at play, none more so than the future structure of Tata Sons under the threat of a possible listing but the larger message is simple: the final veto rests with the family.
Nor is this a first for the Tata Group. When Ratan Tata succeeded JRD Tata in 1991, he inherited a group where powerful professional executives ran individual companies as personal fiefdoms. Russi Mody at Tata Steel Ltd., Darbari Seth at Tata Chemicals, and Ajit Kerkar at Indian Hotels were formidable corporate professionals in their own right. Ratan Tata cut them down one by one, a necessary step toward realising his vision for the business, but also a sign of things to come.
Two decades later, Ratan Tata engineered a different kind of professionalised succession. Cyrus Mistry, part of the Shapoorji Pallonji family but an outsider to Bombay House, was made chairman in 2012 and removed with brutal speed in 2016. That episode also produced the sharpest illustration yet of how far the family would go to enforce its supremacy.
Nusli Wadia, an independent director for nearly four decades and one of the few board members who publicly backed Mistry, was voted off the boards of Tata Steel, Tata Motors and Tata Chemicals within weeks. Here was proof, if any was still needed, that even an independent director's independence lasted only as long as it didn't cross the family.
With Chandrasekaran's exit, the pattern repeats a third time.
What has gone largely undiscussed is the cost to those with the least say in the matter. For over six months, Tata Sons has been governed in a manner that should alarm both Tata watchers and shareholders. A board meeting deferred, a reappointment left hanging, a chairman exiting rather than risking a contentious shareholder vote — none of this might show up in the short term but it has implications in terms of slowing decision-making. This, in a conglomerate whose listed companies answer to public shareholders even as the holding company above them answers to no one but the trusts. Minority shareholders in those listed entities had no say in the matter and no clarity on how long the vacuum would last.
Unsurprisingly, stocks of the major group companies dropped up to 4% following the announcement. That comes on top of the 12.5% the group's listed firms have collectively lost over the past year, and suggests that shareholders see Chandra's exit not as closure to messy times but as the start of another period of unrest.
Finally, there arise uncomfortable questions about the Tata Sons board which could not bring itself to either endorse or clearly reject a third term for its own chairman. Deferring the decision for months rather than forcing a vote has effectively let the trusts govern by inertia.
If the board's role is reduced to waiting for family shareholders to make up their mind, it's worth asking what it's there for.
Noel Tata must now decide whether the group wants professional management or merely professional managers. The structure he once floated, of a non-executive chairman separated from a CEO and deputy CEO, may strengthen governance. Equally, it could perpetuate the same reality: professionals call the shots, until they don't.
The best assertion of family supremacy is swift, decisive, clear-sighted decision-making. It is for Noel Tata to deliver that now.